Health Insurers Feel Heat in California

By

Avery Johnson

Updated Jan. 14, 2011 12:01 a.m. ET

California is once again a hot spot in the battle over the rising cost of health insurance.

Just 72 hours into his new job, the state's insurance commissioner, Dave Jones, started challenging insurance companies that are raising prices on individual policies. On Jan. 6, he called on Blue Shield of California to delay premium increases of up to 59%. This week, he asked Aetna Inc.AET-1.03% and units of WellPoint Inc. and UnitedHealth Group Inc.UNH0.70% to postpone their price jumps as he reviews them.

The issue has attracted national attention, and Health and Human Services Secretary Kathleen Sebelius has pledged to "stand ready to assist [Mr. Jones] and the people of California in any way that we can."

California was a focal point of debate over insurance premiums last year, too, when Mr. Jones's predecessor drew attention to a 39% increase by WellPoint. Errors were uncovered in the rate filing, and WellPoint reduced its increase to an average of 14%. Mr. Jones, then chairman of the state Assembly's health committee, asked a WellPoint executive in a hearing, "Have you no shame?"

"We have a long history in California of 10%, 20%, 30%, 40% rate hikes," said Mr. Jones, a Democrat, in an interview. "This is just business as usual."

Health insurers say the increases are necessary because of rising medical costs. WellPoint's new price increases, averaging 9.8%, "reflect the fact that health-care costs continue to escalate faster than the growth of premiums," according to a company spokeswoman.

California is a bellwether for this issue in part because so many people in the state take out individual policies. Some two million Californians bought individual policies in 2009, more than double the number in Texas, the state with the second-largest individual market, according to the Kaiser Family Foundation. The state's mix of businesses skews toward restaurants, hotels, entertainment and agriculture—industries where employers tend not to offer coverage, said state health experts.

Individual health insurance has attracted significant attention in the debate over the federal health-care overhaul. Historically, insurers have been able to disqualify applicants with pre-existing conditions from such policies, or rescind coverage when people get sick. The new law moves to ban both practices.

Mr. Jones's history as a legal-aid lawyer and insurance-industry critic makes it likely he will draw more attention to the state in the future.

Mr. Jones "has made it clear that he wants to be an activist commissioner," said Anthony Wright, executive director of the consumer-advocacy group Health Access California.

The California insurance commissioner doesn't have the authority to reject increases, nor do his counterparts in many states. Insurers must file rates with California's commissioner, but he can only review them and ensure that they are in compliance with state law.

Delaying rate increases in California could hurt insurance plans' profitability. Last year, when an inquiry required WellPoint to delay increases for six months, the company said it lost $130 million in California.

Aetna and Blue Shield said they were in discussions with the commissioner's office regarding Mr. Jones's request for delay, while WellPoint declined to comment on the request. UnitedHealth said it hadn't received Mr. Jones's request.

Premiums are also rising in California because the state's deep economic downturn has caused healthy people to forgo coverage to save money, leaving a higher proportion of sick people for insurers to cover, said Marian Mulkey, director of health reform at the California HealthCare Foundation.

California isn't the only state seeing premiums continue to rise. In Iowa, Wellmark Blue Cross & Blue Shield plans raised premiums by about 11% this year. In Vermont, MVP Health Care is raising premiums for some Catamount products by about 21%.

Some insurance commissioners are getting tougher on such increases. Late last year, Connecticut's insurance commissioner told a WellPoint unit there that it couldn't raise prices by some 20%, as it had hoped. Washington state's insurance commissioner turned down increases sought by Regence BlueShield of 3.7% and 4.9%.

Regulators are likely to step up scrutiny of rates this summer. Starting in July, the health law gives the federal government the right to review premium jumps greater than 10% if a state doesn't have sufficient procedures of its own.

Federal regulators wouldn't be able to reject increases, but the hope is that requiring insurers to justify them publicly will hold the plans accountable, said an HHS spokeswoman.

Mr. Jones hopes to expand his power on the issue. In the state Assembly, he wrote legislation that would have given the commissioner the right to reject premium increases, which ultimately failed. He intends to support similar legislation this year.

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